Speaking during a recent webinar, Dirk Schmelzer, Senior Portfolio Manager for ILS at Plenum Investments AG, outlined that while the organisation expects another decrease in catastrophe bond risk spreads of around 10–15%, the market remains very healthy and is expected to expand further in both size and the range of risks transferred to the cat bond space.Plenum Investments recently held a webinar where the company examined the current state of the catastrophe bond market and provided an overview of this year’s Atlantic hurricane season.During the webinar, Schmelzer highlighted that Recall, that the overall yield of the catastrophe bond market had previously sat at 11.03% at the end of June 2025, which then declined to 10.81% by August 1st and 10.22% as of August 29th.Moreover, Schmelzer also stated that the cat bond market’s risk spread currently sits at around 5.5%, which is close to the 10-year average of 6%.

Referring to Plenum’s data during the webinar, Schmelzer said: “Spreads tend to be very high at the beginning of the hurricane season and low at the end of the hurricane season and then increase again towards the next hurricane season.You can see that the spread actually has hovered around this long-term average, I would say, for the last approximately twelve months.“So of course, spreads are nowhere near the extraordinary high levels that we’ve seen post Hurricane Ian.

But we are still in an environment where we feel adequately compensated for the risk and very close to historical norms.The question is, where do we go from here? “When we attended the Monte Carlo conference, we spoke with brokers and we looked at the first transactions that get renewed in the market, and we see that from current levels; spreads will most likely come down further.“At the moment, we are expecting another decrease in risk spreads of around 10-15% from today’s levels.” However, Schmelzer affirmed that that spread decline is not uniform across the cat bond market.

“When we look at various different segments, particularly for the change from 2024 to 2025, we see that especially index transaction, so cat bonds that use weighted industry loss indices as trigger mechanisms, have tightened quite a bit.So that’s the segment where we see most of the change coming from,” he explained.“We see less pronounced spread decrease in, for example, California earthquake risk or Florida hurricane risk, and also indemnity structures tend to hold up better compared to index bonds.

“So that is one interesting observation, but it also shows you that it does matter where you expose your portfolio.And we have therefore, not necessarily because of the spread change, but because we feel that industry bonds tend to be higher correlated and express more tail risk in a portfoliounderweighted these positions in our portfolio allocation, and we continue to do that going forward, as the spreads have become tighter on these bonds.” Interestingly, Schmelzer also highlighted that windstorm transactions have tightened less than other market segments, a trend he views as potentially healthy “When we look at the various main risk segments of the markets, the range of spreads that different risk and peril regions pay, has narrowed down.And that creates an environment where, if we diversify globally and reduce a little bit of U.S.

risk and add European windstorm risk instead, for example, we give up less return in terms of risk spread for increasing the diversification.“This helps, our global diversification strategy, but it also encourages cedents of for example, European or Japanese risk, to look at the cat bond market as a reinsurance alternative again.So, this tightening of spreads could trigger a very healthy development in the market,” Schmelzer added.

While Plenum Investments maintains a healthy outlook for the catastrophe bond market overall, Schmelzer was less optimistic about the cyber segment.“Cyber seems to be significantly cheaper in the traditional market than it is in the ILS market and that is probably causing some cyber cat bonds not to be renewed because of the high spread environment.We don’t see the growth that was maybe anticipated two years back in the cyber segment, going forward, at least for the next year.

Of course, that can change depending on how the spread on that exact sub-segment develops over time.” To conclude, Schmelzer reiterated Plenum’s confidence in the cat bond market’s outlook.“We feel that the state of the market currently is very healthy, and we see the market expanding not only in size, but also in terms of cedents that will come into the market and the risks that are transferred to this market.“Although the hurricane season passed without a U.S.

landfall, spreads remain attractive despite the softening of spreads that we have seen, and the softening trends that we expect going forward.We think that spreads will stabilize around current levels or slightly lower than where we are at the moment.“And I hope we could also demonstrate that both our two cat bond strategies offer top tier performance in their respective risk brackets and are excellently positioned going forward.”.

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